I am the India Editor of Forbes Asia and Mumbai bureau manager of Forbes. Earlier, I was managing editor of Business India, among India's leading business magazines. I'm also a founding director of SatyaGyan Foundation, a non-profit that aims to alleviate poverty through education and employment.

Window On A Different Dhaka

Bangladesh has gotten off the economic mat in recent years with a big push into cheap apparel, a mixed blessing whose downside was horribly brought home in November when a Dhaka garment factory caught fire with 112 workers trapped to die inside. The misery brought unusual global attention but only reinforced notions of a sweatshop land.

Yet there is another growth sector in the world’s eighth most populous nation. Its rise has surprised even those close to its pioneers. In 1999, when U.S.-trained pharmacist Abdul Muktadir decided to set up a pharmaceutical company in Bangladesh, his friends and relatives got worried. “No one in our family had ever been in business before,” recalls his wife, Hasneen, daughter of a professor-turned-government-worker and a pharmacist herself. Moreover, the country’s pharma industry was tiny, less than $300 million in sales, with 150 companies competing for business.

But Abdul, with 15 years in the field already, was confident: “There weren’t too many new and advanced drugs in the market. There was clearly an opportunity.” Quitting his job as chief operating officer at Beximco Pharmaceuticals, a leading local firm, he took the plunge. With backing from his friends, owners of the Impress Group, a garments and media empire, he raised the equivalent of $600,000 and started Incepta Pharmaceuticals in a 2,000-square-foot office in the heart of Dhaka city. Within a year he’d persuaded wife Hasneen, then Beximco’s head of research, to join him.

The Muktadirs have since built their fledgling venture (they hold a 40% stake with Impress owning the balance) into the country’s fastest-growing pharma outfit, with revenues of close to $120 million. In the past five years sales at privately held Incepta have been expanding 25% annually on a compounded basis versus the industry’s 14% annual growth over the same period. In revenue the Muktadirs have passed their former employer. Incepta now ranks second in Bangladeshi drugmaking, though it’s still half the size of the biggest pharma Square, founded by the late Samson Chowdhury, a sector pioneer.

Over a third of Incepta’s stable of 338 drugs are generic medicines that were introduced for the first time in the country, such as Pantonix, a drug for gastrointestinal disorders, which today figures among the country’s top three pharma products by retail sales. Similarly, its Osartil outsells all other antihypertension drugs in the market. “New products have been our platform for growth,” acknowledges Abdul, seated in Incepta’s 200,000-square-foot Dhaka headquarters. Tall and handsome, he cuts a striking figure. A plaque displayed in his office acknowledges him as Dhaka’s second-highest taxpayer of 2011.

Incepta’s dramatic rise has coincided with an ongoing expansion in the domestic pharma market. Buoyed by an economy growing at over 6% and improving access to health care for the country’s 160-million-strong population, notably in the rural heartland where state-owned clinics are sprouting, it has nearly doubled in size in the past five years to $1.1 billion. According to one estimate, pharma sales are expected to swell to $1.6 billion by 2014.

Once heavily dependent on imported medicines, Bangladesh is now self-sufficient; 97% of all medicines are locally made. The country has no patent regime currently, although patent protection is due to come into force in the next five years. A protectionist drug policy in 1982 that clamped down on imports, including from neighboring India, drove out multinationals that had long dominated the sector; some of them sold out to local firms.

Today the country’s top ten pharma firms are all locally owned and control two-thirds of the market. Their prowess in producing supercheap, high-quality branded generics is an under-the-radar story in a country that has earned notoriety as the world’s garments sweatshop; ready-made garments account for nearly 80% of Bangladesh’s $24 billion annual exports and are the country’s biggest employer.

“This is prime time for Bangladesh’s pharma sector,” says Aminur Rahman, Bangladesh director of pharma research firm IMS Health. “It’s got the potential to become a global manufacturing hub for generics like India and China.” The country’s biggest comparative advantage is cost; prices of Bangladeshi generics are the lowest in the world: one-tenth the price of Western drugs and up to 20% cheaper than those made in India. This is partly due to a short supply chain. Companies have their own distribution networks with no intermediaries.

Despite the cost advantage, pharma exports are currently a minuscule $50 million annually, hampered by, among much else, the lack of certain drug-testing labs. While factories are required to adhere to the World Health Organization’s Good Manufacturing Practices standards and several have secured accreditation from various countries, including the U.K., not a single one has as yet got U.S. FDA approval. Bangladesh exports to 80 countries, mainly to semiregulated markets.

While local firms have thrived under a protectionist policy, the government has done little to encourage exports, maintains Kaiser Kabir, chief executive of drugmaker Renata (it was Pfizer‘s local arm in an earlier avatar). A bulk- drugs park, which the government had promised to set up five years ago, has still to be completed. Foreign-exchange restrictions don’t allow domestic firms to buy companies overseas. Unless this is relaxed, says Kabir, there’s no shortcut to global markets. He predicts that as Indian firms get expensive to acquire, Bangladesh will start looking attractive and big pharma may well discover that it is “the last peanut on the plate.”

At Incepta Abdul is preparing for the next big leap. “In five years’ time we’d like to be competing in global markets. We’ve built our factories with that goal in mind,” he avers. At Dhamrai, 30 miles north of Dhaka city, a drive that takes nearly two hours through traffic-clogged roads, is Incepta’s newest factory. Spread over 80 acres and built at a cost of $25 million, it opened in July even before securing electricity supply. The factory runs on diesel generators and currently makes oral and injectable hormonal contraceptives, which the Muktadirs plan to export to emerging markets. A new factory on an adjacent site is being built as per U.S. FDA standards. It will make advanced drugs aimed at the U.S. market.

Closer to Dhaka, in the suburb of Savar, is the company’s main manufacturing complex, which makes everything from pills to vaccines. Abdul discloses that a $50 million investment in the vaccines unit in 2009, the country’s first local one, has yet to see any returns. “This would be a killer for any company. But I’m confident it will pay off,” he says.

The youngest of 13 siblings, Abdul grew up in Magura, a small town 100 miles from Dhaka. After his father, a police officer, died when he was in third grade, he grew close to his nephew Salah U. Ahmed, who was three years older. The pair followed a similar path, opting to study pharmacy at Dhaka University, then going to the U.S. for a degree in industrial pharmacy; there Abdul studied at Long Island University.

Whereas Ahmed stayed on to do a Ph.D. and worked for Barr Pharmaceuticals before founding generics maker Abon Pharma in New Jersey, Abdul returned home in 1984 to wife Hasneen, his college sweetheart, who had remained in Dhaka after being refused a U.S. visa. (Today the Muktadirs’ two children are both U.S.-educated.) Abdul says that on returning to Bangladesh after his U.S. sojourn, he sensed the country’s true potential for economic growth. “That gave me lots of hope,” he recalls.

Pursuing parallel careers in pharma, the Muktadirs worked their way up to senior positions. Being on the sales side, Abdul was well-known in the medical fraternity, and that goodwill gave his startup an edge. He was Incepta’s chief salesman, personally meeting doctors to get them to write prescriptions for its drugs. His brand equity helped not only in securing long-term credit from machinery suppliers but also in hiring staff.

Rather than poach from rivals, the Muktadirs sought out fresh pharmacy graduates. Marketing manager Ehsan Aziz, who was one of the earliest recruits, says that Abdul’s track record was a draw, plus his goal to make Incepta the number one company within five years. “It was more a dream than a target, but in five years Incepta was among the top five pharma firms,” says Aziz, who refers to Hasneen as “Apa,” a term of respect that means “elder sister.”

As a rank newcomer Incepta took on established rivals by smart pricing. Abdul cites the example of a cardiovascular drug that was launched at a price substantially cheaper than the imported equivalent available in the market. “While our margins were small, we made up in volume. It took a while for our competitors to match our price, and until then we had a free run,” he elaborates.

One of the biggest challenges, he says, was finding money to fund Incepta’s blistering growth: “Banks weren’t willing to give us loans.” Stuck for cash, he sought out a new bank that in 2002 agreed to extend a $2 million credit line. Thereafter, as banks became willing to fund Incepta’s expansion, the company piled on expensive debt. Realizing that paying interest rates of up to 17.5% risked making Incepta uncompetitive, Abdul tapped Islamic finance. In the past two years he’s been replacing conventional loans with Islamic loans, where the effective cost is 5.5% per year.

The Muktadirs have sought out partners to enter new markets and product segments. For example, Incepta has a marketing and manufacturing pact for insulin with India’s Biocon. It launched four years ago, becoming the first domestic insulin producer. “We were looking to bring affordable insulin to Bangladesh and found Incepta to be a very entrepreneurial company. Their commitment to quality is commendable,” says Kiran Mazumdar-Shaw, chairman and managing director of Biocon.

To enter the U.K. and European markets the Muktadirs have forged marketing partnerships with local generics firms, notably Intrapharm Laboratories and Blackrock Pharmaceuticals. A drug for rheumatoid arthritis has been launched in the U.K. They are also eyeing the U.S., which Abdul acknowledges to be “the next frontier but very challenging.”

Meantime, they’re grooming the next generation in son Saad Muntazim, an industrial pharmacy graduate student at New York’s St. John’s University. Says Abdul, “This is just the beginning.”

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